Question
Mike, who is the controller of the Company, is currently overseeing the project to switch from traditional costing to Activity-Based costing. He is in a
Mike, who is the controller of the Company, is currently overseeing the project to switch from traditional costing to Activity-Based costing. He is in a meeting with the Cost Accountant of the company. The Controller goes over the data and makes the following comments:"Activity-Based Costing is a revelation in the modern-day world of manufacturing Industry. If we are correctly able to categorize the various nature of work into essential levels, then we can dramatically trace the precise nature of the overheard activity."Jacob, the Cost Accountant, quips, "how can we classify those levels of activities? Do we have some mechanism to identify them?"Mike responds, "Yes! We do."lacob then laments the pitfalls of the job order costing system,"The production report will be out soon and usually, the allocation bases (including overhead allocations in job-order costing systems) are not entirely accurate." Mike, with a pause, "That is exactly why we may eventually need to switch to the Activity-Based costing though it is comparatively difficult to implement with the cost and operations limitations involved in it."Jacob adds, "Another consideration to evaluate is the relationship between the cost of maximum (budgeted) capacity and idle capacity, since the company is likely to operate at maximum capacities during the time of peak demand. Moreover, our long-term goals of stable cost predictions and waste minimizations should also be kept in mind."Alright! Let us calculate and analyze the quantitative and qualitative aspects of the data and other factors we have discussed in the meeting today and prepare the preliminary report for the CEO by this weekend." Mike with the final comments!
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started